Stocks Jump After Federal Reserve Confirms March Interest Rate Hike To Fight Surging Inflation

Topline

The stock market ticked higher on Wednesday after the Federal Reserve reassured investors that it would “soon” begin raising interest rates in March as it looks to combat a decades-high surge in inflation and ease concerns about a wider stock market sell-off in January.

The Fed said an interest rate hike would be coming “soon” in March, as expected.

Samuel Corum/Getty Images

Key Facts

The Dow Jones Industrial Average rose 0.8%, around 300 points, while the S&P 500 jumped 1.6% and the Nasdaq Composite 2.4%.

Stocks jumped to their highs of the day after investors were reassured by the Federal Reserve’s latest policy meeting, with the central bank reiterating that it plans to raise interest rates three times this year beginning in March.

The Fed also confirmed that it will still end its pandemic-era asset purchases by March, as it looks to continue tightening monetary policy given the recent “progress” the U.S. economy has made.

Despite initially jumping after the Fed’s announcement, stocks pared back gains as some investors were alarmed by a separate statement from the central bank about “reducing the size” of its massive balance sheet after raising interest rates.

Shares of Microsoft, meanwhile, gained nearly 5% after a strong quarterly earnings report helped boost markets and provided some much needed relief to beaten down tech stocks, which rebounded Wednesday.

Crucial Quote

“With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate,” Fed officials said in a statement.

Key Background:

Stocks have swung wildly so far this week, with the S&P 500 briefly falling into correction territory—at one point 10% below its record high—as market volatility surged. The index is now on track for one of its worst starts to a year ever. Amid the wider selloff in tech stocks, the Nasdaq was the first index to hit correction territory last week, currently around 14% below its record highs last November.

Tangent:

Despite a recent surge in market volatility, most experts believe the added uncertainty for investors won’t deter the central bank from sticking to its forecast for interest rate hikes in 2022. “It’s premature to assume the latest volatility and weakness, in and of itself, will cause the Fed to blink (e.g., adjust the narrative),” said Liz Ann Sonders, chief investment strategist for Charles Schwab, in a recent note.

What To Watch For:

Despite the somewhat “dovish” statement from the Fed, stimulus withdrawal is going to “remain a headwind” for markets over the next several quarters, predicts Vital Knowledge founder Adam Crisafulli. While investors hadn’t been expecting the central bank to announce any major policy changes, concerns about more hawkish policy and the removal of pandemic-era stimulus have been rampant, dragging markets lower so far in 2022.